Peter Schiff Says Fed Will Cut Rates In 2023: No, It's Not Due to Inflation Heading Lower

Ahead of the December consumer price inflation print, an economist warned — much against the widely-held view — that inflationary pressure isn't likely to mitigate.

What Happened: Inflation would head higher and put upward pressure on long-term interest rates and unemployment, Peter Schiff, chief economist and global strategist at Europa.com, tweeted on Tuesday.

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The economist is of the view the Fed will cut interest rates in 2023 not because of lower inflation but due to higher inflation pushing up long-term interest rates and unemployment.

"The Fed will ease to ‘stimulate' the economy & markets," Schiff added.

Those betting the #Fed will cut interest rates this year are likely correct, but the cuts won't be the result of lower #inflation, but higher inflation that puts upward pressure on long-term interest rates and unemployment. The Fed will ease to "stimulate" the economy & markets.

— Peter Schiff (@PeterSchiff) January 10, 2023

Credit Supply Determines Inflation: Inflation, Schiff said, isn't determined just by money supply growth but credit supply. He noted that despite the Fed rate hikes, consumer credit is expanding faster than ever.

"Consumers have ready access to borrow money to pay higher prices," Schiff said, adding that easy money is fueling the inflation fire.

Separately, the economist said blaming inflation on rising wages is like "blaming a fever on the thermometer" and fighting inflation by attempting to limit wage gains is like "fighting a fever by smashing the thermometer."

"Targeting symptoms while ignoring the disease only allows patients and economies to get sicker," Schiff added.

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